Sprint Faces $300 Million Tax Fraud Suit

The state of New York has slapped Sprint-Nextel with a $300 million suit, accusing the wireless carrier of deliberately under-collecting and underpaying millions of dollars in New York state and local sales taxes on flat-rate access charges for wireless calling plans.

That means if you are a New York resident with a flat-rate Sprint calling plan, you can expect your rate to go up. If Sprint begins collecting the tax, it will certainly pass it along to the customer.

In filing the lawsuit against Sprint, New York Attorney General Eric Schneiderman noted that Sprint’s major wireless competitors, including Verizon, AT&T, T-Mobile, and MetroPCS, have followed the law regarding these taxes.

“By deliberately evading sales taxes, Sprint cost state and local governments over $100 million that could have been used for critical services and much needed resources that our state and its citizens need given the challenging economic times we are in,” Schneiderman said.

Law changed, Sprint didn't

The law changed in 2002. In New York, it now requires mobile phone companies to collect and pay sales taxes on the full amount of their monthly access charges for their calling plans.

For example, when a customer pays Sprint a fixed monthly charge of $39.99 for 450 minutes of mobile calling time, the law requires Sprint to collect and pay sales taxes on the entire $39.99. According to the Attorney General's complaint, starting in 2005, Sprint illegally failed to collect and pay New York sales taxes on an arbitrarily set portion of its revenue from these fixed monthly access charges.

To carry out this plan, Schneiderman said Sprint "repeatedly and knowingly" submitted false records and statements to New York State tax authorities. Sprint concealed this practice from taxing authorities, its competitors, and its customers, he said.

Why wouldn't Sprint collect the tax as required? Schneiderman says it was not done to position Sprint's calling plans as cheaper than competitors’ plans by $4.6 million per month, collectively, because of sales taxes not collected and paid.

The Attorney General's complaint also seeks to protect Sprint's current customers. Schneiderman said he will seek to prevent Sprint from making consumers liable for the back taxes. He says he will also seek to allow Sprint's current New York customers to terminate their Sprint contracts without having to pay termination fees.